The ASX is expected to dip again today, with ASX 200 futures down 8 points, or 0.1%, to 7,276 after the US session ended.
The local market lost -0.58% to 7,315 yesterday, snapping its seven-day winning streak.
The market was dragged down by the Energy (-1.34%) and Consumer Discretionary (-1.20%) sectors, with the latter receiving a downgrade from a European Bank - a move expected to be followed by others.
The defensive Utilities (-0.05%), Health Care (-0.07%) and Consumer Staples (+0.71%) sectors were the strongest.
Notably, Qantas shares fell 2.43% to $6.42 after it fell from the fifth best airline in the world to 17th at the 17th Annual Skytrax awards.
Over on Wall St, US equity indices fell for a third straight session.
“Fed chair Jerome Powell repeated comments from last week that policymakers see a compelling case for more rate hikes,” IG Markets analyst Tony Sycamore said.
Powell noted inflation was well above target, however, he didn’t shed new light on the timing.
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said, in testimony prepared for delivery to the House Financial Service Committee on Wednesday.
“We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks,” Powell said.
What happened yesterday
Here’s what we saw (source Commsec):
US markets
Closed lower for a third straight day on Wednesday after a renewed warning from US Fed chair Jerome Powell that higher rates would be needed to combat inflation.
Artificial intelligence and chipmakers performed poorly with shares of Intel (NASDAQ:INTC) (-6%), Advanced Micro Devices (NASDAQ:AMD) (-5.7%), Nvidia (-1.7%) and Microsoft (NASDAQ:MSFT) (-1.3%) all lower. Shares of Alphabet (NASDAQ:GOOGL) (-2.1%) and Netflix (NASDAQ:NFLX) (-2.4%) both fell.
Amazon (NASDAQ:AMZN) shares dropped 0.8% after the US Federal Trade Commission sued the online retailer. Shares of Tesla (NASDAQ:TSLA) slid 5.5% following a downgrade to equal weight from overweight by Barclays (LON:BARC). Shares of package delivery firm FedEx (NYSE:FDX) shed 2.5% after posting disappointing quarterly earnings and said waning global demand is pressuring its profit margins.
The Dow Jones index fell by 102 points or 0.3%. The S&P 500 index slid 0.5% and the Nasdaq index shed 165 points or 1.2%.
European markets
Fell on Wednesday as US Fed chair Powell said policymakers expected interest rates will need to move higher, while hotter-than-expected UK inflation data also weighed on sentiment.
Real estate and technology shares led losses, both down by 1.6%, amid continued concerns about global growth.
The continent-wide FTSEurofirst 300 index slid 0.4%. And the UK FTSE 100 index slipped by 0.1% after British inflation defied predictions of a slowdown and held at 8.7% over the year to May (survey: 8.4%), putting more pressure on the Bank of England a day before it meets to set interest rates.
Currencies
Currencies were stronger against the US dollar in European and US trade.
- The Euro rose from US$1.0905 to US$1.0989 and was near US$1.0985 at the US close.
- The Aussie dollar lifted from US67.43 cents to US68.03 cents and was near US67.95 cents at the US close.
- The Japanese yen firmed from 142.32 yen per US dollar to JPY141.69 and was near JPY141.85 at the US close.
Commodities
Global oil prices rose on Wednesday as US corn and soybean prices raced to multi-month highs, raising expectations that crop shortfalls around the globe could lower biofuels blending and increase oil demand.
- The Brent crude price rose by US$1.22 or 1.6% to US$77.12 a barrel.
- The US Nymex crude price added US$1.34 or 1.9% to US$72.53 a barrel.
Base metal prices lifted on Wednesday on the back of a weaker US dollar.
- The copper futures price rose by 0.8%.
- Aluminium futures price gained 0.2%.
- The gold futures price fell by US$2.80 or 0.1% to US$1,944.90 an ounce.
- Spot gold was trading near US$1,932 an ounce at the US close.
- Iron ore futures dipped by US23 cents or 0.2% to US$112.85 a ton as hopes for a Chinese steel demand recovery faded.
Financial markets challenged
T Rowe Price has released its mid-year market outlook.
The report suggests a reluctantly bearish view for the short term, with more room for optimism over the longer term.
It said world economic resilience is being tested by the effects of a steep, global interest rate hiking cycle and a shift to quantitative tightening. Labour markets remain strong and are an important signal for investors to watch as any softening could increase the risk of a recession.
While equity markets have delivered gains in the first half of 2023, earnings estimates may still be too high for a weakening economy, putting further pressure on equity valuations.
Here’s what the analysts had to say:
Arif Husain, head of International Fixed Income and chief investment officer
“I am bearish because the risks are substantial, but I am also reluctant because excessive pessimism can lead investors to overlook opportunities and miss potential market recoveries.
“I think some financial indicators also could be sending misleading signals about the near‑term direction of central bank policy rates. The market is trying to reconcile two very different scenarios – one where the US economy remains fairly strong and the Fed doesn’t cut rates, and one where the Fed has to cut by several percentage points.
"The Fed and other central banks in developed markets will lower rates eventually, but the timing is tricky. Rates are likely to remain higher for longer. This could mean an aggressive portfolio shift into longer‑term bonds appears premature. Some emerging markets may be on the verge of rate cuts, but they are only attractive on a very selective basis.
“Japan, as a last anchor of quantitative easing, could be about to give way. If the Bank of Japan allows yields to rise, Japanese investors who control the world’s largest pool of financial wealth could start bringing their wealth back home, delivering a significant shock to markets outside Japan. This could end up being a lot more important for markets than whether the Fed hikes or cuts rates at its next meeting.”
Sébastien Page, head of Global Multi-Asset and chief investment officer
“Many economic indicators are flashing red but lingering distortions from the COVID pandemic make it hard to distinguish the signal from the noise. Stock valuations aren’t broadly attractive right now, but opportunities exist in some asset classes.
US small-cap stocks, for example, are trading at significant discounts to their historical averages and priced like it’s 2008. However, since smaller companies historically have been more vulnerable in economic downturns, it takes skilled security selection to help avoid those with weak balance sheets and high cyclical earnings exposure.”
Justin Thomson, head of International Equity and chief investment officer
“The welcome boost to global growth in the first half of 2023 delivered by major eurozone economies and China has mostly faded. On the other hand, Japan's strong momentum continues, driven by a weak currency that has supported the export sector, a return of pricing power of corporations, and positive governance reforms that have taken root.
“Potential opportunities may be available among the mega‑cap technology companies that were hard hit in 2022, with artificial intelligence (AI) driving investment in a range of tech sectors such as semiconductors, memory, and cloud storage. An AI arms race means the strong tech companies are likely to get stronger.”
Thomas Poullaouec, head of Multi-Asset Solutions, APAC and chair of the Asian Investment Committee
“The Asian economies are at a different stage of their business cycles compared to the rest of the World. The recovery post-COVID is still in its early stage and has not fully played out, with the recovery in regional tourism still underway, for example. Inflation is not as big of a concern as elsewhere, which allows selective Asian central banks to ease policies earlier than in the major developed economies. This tells me that it’s too early to give up on Asia.
“Finding opportunities in Asia requires a new playbook for a few reasons. First, China's service-led recovery will unfold differently compared to previous infrastructure-led recoveries. Second, geopolitical tensions are changing supply chain models. Third, economic momentum is decoupling. For the second half of the year, we maintain an overweight position in Asian equities and bonds, leveraging our active research platform to selectively pick the sectors and companies that can best navigate this changing landscape.”